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Suntech Power reported its fourth quarter results that showed a decline in volumes as well as margins in the last quarter in what has been a trying year for the solar industry. [1] The company reported a net loss of $1 billion for the year, largely because of a $462 million charge it took in Q3 and because of other settlement charges and expenses.

Other solar companies like Trina Solar and First Solar have also booked significant losses after being hit by falling margins and write-downs. Suntech management expects moderate growth in sales volume in 2012, but warned that panel sales may fall by 30% in the first quarter.

Suntech reported gross margins of around 12.3% in 2011. Margins fell to about 10% in Q4 and are expected to fall further to about 3 – 6% in Q1 2012 as demand weakens further.

The panel manufacturer warned that panel sales could drop by almost 30% in Q1 as Germany and other European nations cut down on solar subsidies. However, according to the company’s forecasts, total panel sales for the year may be between 2.1 to 2.5 GW. The company managed to sell about 2.1 GW of capacity in 2011.

Panel manufacturers have been forced to cut prices drastically over the last few quarters in response to falling demand as governments in the E.U. have cut down on support to solar energy. Price cuts have resulted in industry-wide margin compression as most manufacturers are reporting growing volumes without any increase in profitability.

Suntech’s CEO remained hopeful that sales from markets like the U.S., India, China and Japan could help offset lower demand from European markets. [2] Germany, the world’s largest market for solar panels, plans to cut down capacity additions this year by more than half to about 3 GW. This development could further delay a recovery in panel pricing as the industry continues to grapple with overcapacity.